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Weekly Update – April 27, 2018

  • Stocks had a choppy, mixed week: Asian and European bourses saw gains but U.S. markets declined. Worries about trade policy and a potential business cycle peak trumped the strong earnings season. The 10-year U.S. Treasury yield breached 3%, settling at 2.96% and raising fears of a rotation out of stocks into bonds. Oil and gold prices were volatile as they fell.
  • As of April 27, with 53% of S&P 500 companies reporting first-quarter results, 79% had exceeded earnings expectations, while 74% had beaten sales expectations. FactSet estimated the S&P 500 index’s first quarter earnings growth at 23.2%, which if it holds, will be the highest rate since third quarter 2010. The index’s 12-month forward P/E ratio stood at 16.3, above the five and ten-year averages of 16.1 and 14.3, respectively. Alphabet, Texas Instruments and Verizon impressed this week; 3M, eBay and Caterpillar disappointed.
  • The Commerce Department reported that U.S. gross domestic product rose at an annual rate of 2.3% during the first quarter, down from the 2.9% rate observed in fourth quarter 2017. Commerce attributed the drop to slower consumer spending.
  • The U. of Michigan consumer sentiment index slipped 2.6 points in April to 98.8, still high compared with historical levels. The slip mostly reflected views of current economic conditions; an index measuring expectations of future growth was mostly unchanged.
  • Existing home sales ticked up 1.1% in March vs. February but fell 1.2% compared to a year ago. Tight inventories, rising mortgage rates and high prices are dampening the spring selling season.
  • The Markit U.S. Composite PMI Output index rose to 54.8 in April, up from 54.2 in March, indicating an upturn in business activity driven by accelerated growth at both manufacturing and service sector firms.
  • For the week ended April 21, initial jobless claims fell to 209,000 — the lowest reading since early in the Nixon administration, and a sign the economy is reaching full employment.
  • The European Central Bank left key policy settings unchanged, saying QE will continue until inflation picks up. Observers expect monthly bond purchases of €30 billion to run at least until September.

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